A franchise agreement is not considered void simply on the basis of a technical non-compliance. That’s the result of the most awaited High Court decision in Australian franchising, the so-called Ketchell case.
Franchise Council of Australia chairman John O’Brien said the court ruling had eliminated a doubt which had hung over the sector since an unexpected ruling by the NSW Court of Appeal earlier this year.
“This decision means we can return to confidence in the pivotal contract which underpins franchising across Australia and all over the world – the agreement between franchisor and franchisee about how they will conduct business to their mutual benefit.”
The High Court ruled that a breach did not necessarily bring a franchise contract to an end, as other remedies were available. The Court’s aim is to permit a franchisee to seek the relief that is appropriate to the circumstances of the case.
The case concerned a franchisor (Master Education Services Pty Ltd) who sued a franchisee (Ketchell) for recovery of unpaid monthly franchise fees which it was owed under the franchise agreement.
The case had a complicated procedural history which ultimately saw it appealed to the Court of Appeal in New South Wales. That court held that because the franchisor had breached a clause by entering into a franchise agreement without having received from the franchisee written statements that the disclosure document had been received, read and understood, as set out in The Franchising Code, the agreement was illegal and unenforceable.
The franchisor appealed this decision to the High Court.
FCA executive director Steve Wright said clarification provided by the High Court was exactly what the FCA, which had funded the appeal, had been seeking on behalf of the whole franchising community – franchisors, franchisees and advisers.
Wright said the FCA took the decision to fund the appeal after exhaustive consultation across the sector.
Tony Garrisson, partner at Mason Sier and Turnbull, said: “With disputes currently faced by franchisors and franchisees involving ‘Ketchell’ arguments, each party will need to consider the Ketchell decision carefully and apply it to the merits of their individual circumstances.”
Yves Hazan, the principal of Hazan Hollander Lawyers in Sydney, warned franchisors to not overestimate the likely effect of this decision.
“The case does not remove franchisor’s legal obligations to franchisees, although it does provide some welcome relief from harsh consequences for technical breaches. Caution is still needed, because franchisees retain many legal avenues to redress wrongs done to them by franchisors in the conduct of their franchises.”